An analysis of the Aspen housing market

An Analysis of the Aspen Housing Market by

John Markham Soininen

Bachelor of Science in Civil Engineering, 1996 Lehigh University

Submitted to the Department of Urban Studies and Planning in Partial Fulfillment of theRequirements for the Degree of Master of Science in Real Estate Development

at the

Massachusetts Institute of Technology September, 1999

©1999 John Markham Soininen All rights reserved

The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part.

Signature of the Author

Certified by

Certified by

Accepted by

-\-~hn M. SoirrInen

Department of an Studies and Planning August 2, 1999,M Henry Pollakowski Visiting Scholar Thesis Supervisor William C. Wheaton Professor of Economics Thesis Supervisor William C. Wheaton

Chairman, Interdepartmental Degree Program in Real Estate Development

MASSACHUfSEUS INSTITUT OF TECHNOLOGY

OCT 2 5 1999

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An Analysis of the Aspen Housing Market by

John Markham Soininen

Submitted to the Department of Urban Studies and Planning on August 2, 1999 in partial fulfillment of the requirements for the degree of Master of Science in Real Estate Development at

the Massachusetts Institute of Technology Abstract

Aspen, Colorado, has a booming economy, and there is the potential for working residents to earn substantial incomes. Purchasing a home is not an option for most wage earners, though, because the average home price is over a million dollars. Much of the existing housing stock in

Aspen and Pitkin County is owned by very wealthy second-home owners. As a result, Aspen's attractiveness as a home to local employees is limited by its housing market.

The real estate industry thrives in part due to the scarcity of developable property in the narrow valley, but primarily due to Aspen's distinction as a world class resort. Pitkin County is located in a beautiful section of the Rocky Mountains. This part of Colorado has excellent skiing 180 days out of the year, and is blessed with sunshine 80% of the time. Additionally, there are five

18-hole golf courses and numerous other outdoor activities. Aspen continues to grow as a year round resort.

Pitkin County is roughly 960 square miles in area, but 83% of the county is public land. Getting to Aspen is very difficult. Aspen is located at the end of a horseshoe-shaped valley more than 60 miles from an interstate highway. Pitkin County is analogous to a small resort island due to its

isolation and desirable location. The area surrounding this mountain valley is primarily public land and the roads were not designed for commuter traffic.

The community has approximately 1,900 rent-controlled or deed-restricted "affordable" units. This large number of subsidized units is still not sufficient to meet the demand at realistic rents. Thus many workers must live far from there jobs and commute to work.

The purpose of this study is to analyze the Aspen and Pitkin County housing market. Emphasis is placed on what has happened in Pitkin County to cause these problems, and what is being done to alleviate the stresses on the housing market. Insight into what an isolated resort economy in the United States has done to deal with its housing problems can hopefully be useful to similar economies around the world.

Thesis Supervisor: Henry Pollakowski Title: Visiting Scholar

Acknowledgement

I would like to thank the following people for their generous assistance during this project. My Advisor, Professor Henry Pollakowski, for his guidance and direction without which I would not have completed this project.

All of the people in the City of Aspen and Pitkin County offices who were not only

knowledgeable, but extremely helpful. Specifically I would like to thank Tom Issac and Debby Payne for their generous donations of time information.

My Parents for their continued support and help with editing my sometimes unintelligible writing.

Most importantly, I would like to thank my wife Lisa who supported me and put up with me throughout this project. Lisa, you are an incredibly giving person who made many sacrifices on my behalf. Your love and support certainly does not go unnoticed and could not be more

1. Introduction... ... 6

1.1. Introduction ... . .. 6

1 .2 . O u tlin e ... 8

2. History of The Roaring Fork Valley... 10

2.1. T he M ining B oom ... 10

2.2. Skiing in the Roaring fork Valley...14

2.3. Growth in the Modern Era ... 17

3. Housing Supply.... ... ... 20

3.1. Overview of the Pitkin County Housing Stock...20

3.2. Geography and Distribution... 22

3.3. Historical Growth in Housing Stock...23

3.4. Housing Stock During the Last Decade... 24

3.5. The Current Situation...29

3.6. A verage Sales Prices. ... 34

3 .7 . S um m ary ... ... 34

4. Governmental Regulations and Their Effects on the Housing Stock...36

4 .1. Introduction ... . . 36

4.2. Affordable Housing Guidelines...37

4.3. The Aspen Area Community Plan...39

4 .4 . Z on in g ... . . 4 3 4.5. The Future of the Housing Stock in Pitkin County...45

5. Demand for Residential Property...47

5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. Introdu ction ... . 4 7 Forces Behind the Demand for Housing...48

Working Residents' Demand for Housing...49

The Shift in Demand for Reasonably Priced Housing...53

Another Perspective on the Population of Pitkin County...56

C orporate D em and... 58

6. Results and Conclusions... . . ... 61

6.1. Comparisons to Other "Island Economies"...61

6.2. Summary of the Pitkin County Housing Situation... 66

6.3. Intentions and Reality of Governmental Intervention...69

6.4. Oversights and Further Studies...71

1. INTRODUCTION

1.1. Introduction

Aspen, Colorado, is a city of approximately 6,600 residents nestled in a narrow valley carved through the Rocky Mountains by the Roaring Fork River. This City was made world famous in 1947 with the opening of the Aspen Ski Area and remains a popular skiing destination today. Aspen became known for its incredible powder skiing and spectacular terrain, but its reputation has grown as it has been transformed into a year round resort.

There are currently four ski areas in the Upper Roaring Fork Valley: Aspen Highlands,

Buttermilk, Snowmass and the original Aspen Mountain. There are five 18-hole golf courses, and the Frying Pan and Roaring Fork rivers host some of the best fly fishing in the world. People come to this valley not only to enjoy all of the activities it has to offer, but also to just relax. It is an incredibly beautiful region with a spectacular climate. The mountains are blessed

with enough snow to accommodate more than 180 days of skiing each year, and Colorado has about 300 days of sunshine. This region appeals to people with an active and outdoor lifestyle.

The fact that Aspen and the surrounding Pitkin County are so beautiful and facilitate so many activities also make this county a desirable place to live and work. Many people have chosen to settle in this county, and it has gained the attention of corporations too. It is not a typical area for companies to locate their headquarters, but rather one in which CEO's and other high net-worth individuals choose to locate their second homes and corporate retreats. The purchasing power of

these individuals is such that sellers can command top dollar for their property and the median home price in the city of Aspen has risen to more than $1 million.

While the demand for housing in Aspen has increased so dramatically the supply of housing has not. Pitkin County passed a growth management plan in 1977 limiting total growth to 3.4% per year. As building slowed, rents increased, and just one year later there was a shortage of

employees. In 1990, there were 9,837 housing units in Pitkin County.2 Of these approximately 1,900 were "affordable" housing units and it is estimated that they housed 2,400 local

employees.

The drastic increase in home prices over the past twenty years has made this area too expensive for most year-round residents to purchase homes in the open market. Wage earners cannot afford to purchase property in this drastically inflated market and as a result go elsewhere to live. Many

still commute into Aspen to work. When the day is over, however, the city empties and the workforce commutes home. Currently less than 30% of Aspen's labor force lives in Aspen3 and as a result the city is losing much of the character that it once had. Aspen is no longer a

community in which people work and play, but instead one in which people commute to service wealthy second-home owners and tourists and then disappear.

I Amy Margerum and David Tolen, "Aspen's Affordable Housing Program Helps Create Community, " Colorado Municipalities (November/December 1994) p. 8.

2 U.S. Bureau of Census, "Census of Housing," 1990.

The question then is whether the character of Aspen will change significantly enough to cause it to lose its desirability if the "locals" are no longer there. Most have considered Aspen to be a beautiful, quaint city with a strong community and truly individual character. One can imagine

this area losing the vitality it currently has. If none of the labor force lives in Aspen, what will happen to its sense of community and at what point will the labor force decide to seek

employment elsewhere? What can similarly supply-constrained housing markets learn from the city of Aspen and Pitkin County? After seeing what has been done in the past, can these markets

make decisions to ensure a prosperous future?

1.2. Outline

This paper consist of six chapters: 1) Introduction; 2) History of The Roaring Fork Valley; 3) Demand for Residential Housing; 4) Governmental Regulations and Their Effects on the Housing Stock; 5) Housing Demand; and 6) Results and Conclusions including comparisons to

Bermuda. The first chapter of this paper, The Introduction, frames the issues to be discussed and the questions to be answered. It outlines the format in which data and information will be

presented and sets the foundation upon which this paper will build. The second chapter, History of The Roaring Fork Valley, outlines the historical growth and decline in the area and provides a background to help understand the factors that lead to the current situation.

The paper will present a detailed economic and statistical analysis of the housing market in Pitkin County. Chapter Three addresses the supply side of the housing market focusing on what currently exists in the residential housing arena, how it has developed over time, and what is

possible in the near future. The fourth chapter, Governmental Regulations and Their Effects on the Housing Stock, explains what governmental agencies have done to guide and control the

growth and housing issues in Aspen and Pitkin County. This county has been pro-active in addressing the issues facing it and previously enacted policies very much determine what happens today.

Chapter Five focuses on the demand for residential housing. This chapter looks at who lives in this area and why. It explores who the primary employers in this area are, what is happening in

the tourist industry, and the factors driving the expensive second-home market.

Finally, in Chapter Six, this paper compares and contrasts the Pitkin County housing market to that of Bermuda. Bermuda is clearly different in several ways. Certainly the most obvious of these is the fact that Bermuda is a true island and people cannot commute to work from someplace else. Aspen and Bermuda are, however, similar in many ways not apparent at first

glance.

Pitkin County has been very pro-active in dealing with its housing shortage and may prove to be a good role model for Bermuda. The last chapter, Results and Conclusions, will summarize the findings from this study, draw several conclusions, and answer the question of what similarly supply-constrained housing markets can learn from the city of Aspen and Pitkin County, Colorado.

2. HISTORY OF THE ROARING FORK VALLEY

2.1. The Mining Boom

The Civil War had been over for 15 years when the first settlers found their way into the Roaring Fork Valley. The year was 1879, and families of miners and ranchers were beginning to spread into the Rockies. The transcontinental railroad was ten years, old while the state of Colorado was just three. America was in the middle of four decades of unprecedented mineral exploration. The California Gold Rush of 1848 had set the stage for the first discovery of gold in Colorado in

1859. Over one hundred thousand miners flocked to the Rocky Mountains in hope of striking it rich.

Aspen's first prospectors were almost all from Leadville, Colorado. Leadville had experienced years of disappointing gold mining when in 1877 several rich silver deposits were discovered. In

1879 over nine million dollars of silver was extracted from the mountains beneath Leadville. Leadville was full of entrepreneurs looking for new or richer pastures. Prospectors had learned that geological formations could reveal information about hidden mineral deposits; after the state-commissioned mapping of Colorado's geological and topographical features, these miners had the tool they needed to expedite exploration in new areas. With that, several prospectors set their sights on Leadville's neighboring valley.

In the summer of 1879, the first prospectors began the arduous 72-mile journey from Leadville to the Roaring Fork Valley. After traversing the steep and treacherous mountains, these first

several days of work, these men then returned to Leadville to register their claims with the county clerk. It did not take long for news of these new discoveries to spread, and the Roaring Fork Valley quickly became the focus of much attention. Within sixty days of the first

explorations, dozens of prospectors and suppliers found their way to the Roaring Fork Valley. About thirty-five people spent this first winter in what was dubbed Ute City after the native Ute Indians.

Several men worked together to build a cabin on the outskirts of town, while others lived

together in tents and set to work digging. Several Swedes in the camp initiated the prospectors in the craft of making "Norwegian snowshoes". These snowshoes were, in fact, crude skis which made navigating the deep snow in the Valley much easier. Some argue this was the beginning of recreational skiing in the Valley.

The first years of Ute City were filled with speculation, and many property rights and mining claims changed hands before any digging was done. In 1880 the first survey of Ute City was completed, giving B. Clark Wheeler the development rights to the town site. After completing the survey, Wheeler managed to persuade the residents to change the name of the camp to Aspen. Shortly thereafter, Wheeler formed the Aspen Town and Land Company. In May of that year, he began to lay out the town's first subdivision.

During the summer of 1880, The Aspen Town and Land Company cut a road over Taylor Pass to Buena Vista. The population swelled to more than 500; the town had a second-hand store, four saloons, and a log cabin. In May of 1881, the area surrounding Aspen became Pitkin County

-named after the governor. That same month Aspen became incorporated, and the first election took place with 322 registered voters.4 _{In spite of its isolation, Aspen grew in a rather}

distinguished, or cultural, fashion that was not common for such early mining towns. Churches, schools, and family homes grew in the same proportions as saloons, boarding houses, and businesses. The influx of nearly 800 people that summer created a building boom, and soon

lumber became the town's second largest industry.

In June of 1882 the county managed to string a telegraph wire over Taylor Pass, connecting Aspen to the outside world. The town had swelled to more than 2000 residents. A vague loss of optimism, however, hung over the town because Aspen did not have a smelter to melt down the mined ore and extract the silver to a more manageable form. The lack of rail service prevented shipping raw ore, and in the four years following its settlement Aspen did not produce a single bar of silver.

It was not until 1884 that Aspen began to produce silver. A wealthy businessman from New York purchased the parts of a half-finished smelter, which became operational on July 4*' amidst

great celebration. That summer 500 miners were at work producing an estimated $1.26 million per annum of concentrate worth $600 a ton.' The concentrate was shipped out by mule to the railroad in Granite and then on to Pennsylvania for Refining.

Sally Barlow-Perez, A History ofAspen (Aspen, Colorado: Who Press 1991), p. 18 5 Ibid, p. 22

By 1885, Pitkin County had a population of 4,4846. Mining, construction, retailing,

transportation, and freighting were all booming. Over 1000 homes had been built and the Aspen Water Company piped water two and a half miles from the hills into town. Soon thereafter the Aspen Electric Light and Power Company was formed, making Aspen one of the first cities in

the state to have completely lighted streets. Socially, Aspen's elite boasted a lifestyle similar to that in any other "civilized" city.

Until 1887, Aspen was really a slave to its isolation. The arrival of the railroad changed the town more than any other single event. The Denver & Rio Grande Railroad reached Aspen on October

2 7Ih, 1887, and the first official train came with 25 cars on November 1V. Just four months later, the Colorado Midland Railroad Company arrived via another route; before long there were feeder lines to every major mine in town. The arrival of the two railroads triggered an incredible

economic change. Aspen was no longer a sleepy mining town, but instead a busy industrial center.

In 1893, just fourteen years after the first settler found his way into the Roaring Fork Valley, Aspen had a population of more than 10,000. Almost 3,100 men were employed in mining operations 24 hours a day. Three shifts of men worked hundreds of feet bellow the surface. The average mining salary was three dollars a day and a family home could be "had" for 25 dollars a month. The future looked good for most people in Aspen.

All that changed, however, in the spring of 1893 when President Grover Cleveland called a Special Session of Congress to repeal the Sherman Act and "de-monazite" silver. As word spread to Colorado, silver prices fell. By the end of 1893 80% of Aspen's businesses were bankrupt. By the end of the century, Aspen's population was 3,303. By 1910, it fell further to

1,834.

2.2. Skiing in the Roaring Fork Valley

Aspen's rebirth as a skiing destination actually began in another beautiful mountain village, Garmisch-Partenkirchen. This quaint village in the German Alps was the site of the 1936 Winter Olympics. This event not only helped popularize alpine skiing, but it also brought together two enthusiastic American outdoorsmen who met and discussed the need for truly first-class skiing in the States. Theodore Ryan and William Fiske agreed to keep in touch and inform each other if they spotted any good development opportunities.

The following year, when in California, Fiske met a young Aspenite, with a picture of his hometown. Thomas Flynn was telling tales of the riches beneath Aspen's picturesque mountains and hoping to sell some of his mining claims to Fiske. Fiske, however, had no interest it what was in the mountains, but rather what he saw on them. During a visit to Aspen, Fiske was able to

convince Flynn and other locals that Aspen's future did not lie in silver, but in snow.

Fiske lost no time in making his move to develop a premier American ski resort. He took an option on the land near the old town site of Highland and contacted Ted Ryan to tell him he had

7 Sally Barlow-Perez, A History ofAspen (Aspen, Colorado: Who Press 1991), p. 33

found the spot. By the fall of 1936, they had formed the Highland-Bavarian Corporation, solicited several investors, purchased 300 acres of land, and started construction on a 16-room lodge to house the area's first tourists. Opening day was December 26*, 1936. The Highland-Bavarian Corporation then applied for special-use permits from the U.S. forest Service and began to survey for lifts and trails. Anxious to promote skiing in Colorado, the State Legislature

approved a $650,000 bond issue for the construction of the aerial tramway and a hotel. The resort was in its infancy, but its reputation was growing by leaps and bounds.

In July of 1937, the Aspen Ski Club, and Roosevelt's Works Projects Administration cleared Aspen's first ski run. It was three and a half miles long and dropped 2000 vertical feet. The first

lift, the Boat Tow, was also constructed that summer. Powered by a Model A Ford engine, it consisted of two sleds which carried ten passengers each. By 1938, The Aspen Ski Club was ready to hold its first ski race and things escalated from there. In 1941, The National Alpine Championships brought the nation's best skiers. It seemed that Aspen was finally back on its way when news of the war in Europe began to make its way to Colorado. When Pearl Harbor was bombed and the United States declared war against the Axis, the Highland-Bavarian project

was put on hold indefinitely.

The area lay essentially dormant for more than four years while recreation and all other activities took a back seat to the war. It was not until 1945 that any real progress took place in the

development of Aspen. Walter Paepcke was brought to Aspen by his wife, Elizabeth, who had visited before the war. Walter had the vision to try to transform Aspen into a recreational and

Corporation of America, the nation's largest packing company. In addition to building a corporate empire, Paepcke had received a classical education and was particularly interested in the Greek concept of the complete life: a combination of work, play, and educational leisure. Paepcke saw the setting where his ideal life might become a reality.

The businessman in Walter Paepcke saw the need for an economic base in Aspen. When he met several ski area supporters, they decided to form the Aspen Skiing Corporation. Starting in

1946, several of those involved with the formation of the Aspen Skiing Company began surveying the mountain and formulating plans for new trails and lifts. A lift was built in two sections and trails were bulldozed in time for the grand opening of the resort on January 11*,

1947. The selection of Aspen as the site for the 1950 FIS (Federation Internationale de Ski) World Championships put Aspen on the map and gave it the international recognition many felt it deserved.

As Aspen grew as a resort destination, it also grew as a cultural center. The Music Festival in 1950 featured the Denver Symphony Orchestra and ran for eleven weeks. The first official lecture of the Aspen Institute for Humanistic Studies took place on July 2"d, 1950. As Aspen

grew in popularity it became clear there was a need for an airport; soon there was daily service to and from Denver. By 1954, Walter Paepcke could be credited with three major successes for this area: The Aspen Institute, The Aspen Summer Music Festival, and The Aspen Music School. Walter Paepcke molded the growth of Aspen for almost two decades. The Paepcke Era came to and end with his death in 1960, but he is responsible for much of the way Aspen is today.

After the 1950 FIS races, Aspen was among the premier ski resorts in the world, and the Aspen Skiing Corporation continued to grow. As Aspen grew, however, so did the competition. In 1957 Whipple Jones began work on a ski area he called Aspen Highlands. One year later Friedl Pfeifer sold his interest in the Ski Corp. to start Buttermilk -- a mountain geared for the beginner and intermediate skier. Buttermilk was later purchased by the Ski Corp. in 1963. In 1964, the Janss Investment Company joined forces with The Aspen Skiing Corporation. In 1967 they opened Snowmass-at-Aspen with five chairlifts, five lodges, two condominium complexes, and a

central village mall. As skiing grew in popularity around the country, so did the Aspen Skiing Corp. In 1969/'70 the company reported 730,472 skier-days, and by 1989/'90 that number increased to 1,121,503.8 Aspen had been transformed from a viable natural resource into an expansive recreational complex.

2.3. Growth in the Modern Era

The growth that took place in Aspen between 1960 and 1990 was incredible. In those three decades the population quadrupled, going from 1,101 to 4,700.9 During the same period, the population of Pitkin County went from 2,381 to 14,474. In 1953 Aspen had no paved streets, stoplights, central heating, supermarkets, or traffic jams, and not until 1956 did it have any zoning. Getting the first zoning laws passed was a real challenge as many viewed the laws as simply restricting growth and prosperity. The few laws that were passed were in no way adequate for the building that began in 1960.

8 Sally Barlow-Perez, A History ofAspen (Aspen, Colorado: Who Press 1991), p. 65

In 1966, an Aspen Area Master Plan was adopted to try to guide the region's growth. In the six years between 1960 and 1966 Aspen's population doubled and the county's tripled. It was hoped that the new plan, which established planning and zoning boards, would help Aspen navigate

between runaway growth and stifling restriction. The biggest problem that resulted from the implementation of the Aspen Area Master Plan was the definition of "reasonable" growth. The debates were heated and there were no real winners, but one new faction was born. Probably the most significant result of this period was the birth of no-growth politics. The first person to run on a no-growth platform was defeated in 1969, but that was the beginning of a slow and powerful movement.

The 1970's were a period in which the primary objective became planning for Aspen's future. Ground was broken on the Aspen Airport Business Center which housed 150 businesses and 125 apartments. Aspen turned down its bid for the 1972 Olympics fearing it would commercialize Aspen. In 1972, Aspen hired its first full time city planner and purchased a total of 230 acres to be used for parks. Soon after Aspen passed a Sixth Penny sales tax to be used for open space. This tax enabled the city to purchase the land for a golf course and several other properties. A Seventh Penny tax was passed for transportation and started what would become the Roaring Fork Transit Authority. The City Council also established a series of six view planes that could not be compromised. This served to limit new building height.

In 1973, no-growth politics became very visible. The election of a new mayor facilitated several actions that would drastically change the county's growth. All building permit applications were

put on hold pending a tightening of the city zoning regulations. A pedestrian mall plan was passed in an effort to alleviate traffic and preserve the atmosphere in downtown Aspen. The largest change, however, was the re-zoning of the entire county. In some cases land was changed from quarter-acre zoning to 35-acre zoning. Plans were laid for an extensive trail system and for the creation of more parks and green space. In 1977, a new hospital and airport were planned.

Many in the business community argued that all these changes would hurt them; however, business boomed despite their predictions. In fact, this downsizing helped to make Aspen even more attractive, although far more expensive. In 1977, a new county growth management plan was implemented limiting growth to 3.4% annually. This slowed growth, which solved one group's problem, but created another very serious problem. Rents rose and housing became scarce. Wealthy part-time residents could pay very high prices, and workers and wage earners were forced out of town and down the valley. This problem has only become worse with the passing of time.

3. HOUSING SUPPLY

3.1. Overview of the Pitkin County Housing Stock.

Pitkin County is located in the Rocky Mountains in an isolated section of central Colorado. The town of Aspen, which is the only city in the county, is located at the end of a horseshoe-shaped valley. The county's population is between 15,000 and 20,000, depending on how one measures it. There are just under 11,000 housing units. Much of the land in the county is unavailable for

development, and 83% of the county is public land.'0 The remaining 17% is distributed between residential, commercial, industrial, and agricultural properties. The majority of non-public land is residential, but the regional housing market is still severely supply-constrained.

The county can be broken into five distinct areas with the four largest in the main valley. The Roaring Fork Valley, named for the river which created it, has 10,054 housing units while the entire county has only 10,565 units." This number has increased from 9,837 units in 1990. At that time, the U.S. Census of Housing determined that 40% of the supply was vacant. They were not vacant because nobody wanted to use them, but rather because they were second homes used only a small percentage of the time.

Aspen and Pitkin County have a full range of housing types with extremes on both ends. There are old mining cabins, multi-million dollar estates, and everything in between. It is an area where trailer homes can sell for $200,000 and mansions a mile away can sell for more than

" Hal Clifford et al, "The 10 Best Mountain Towns," Mountain Sports and Living, (January/February 1999) p. 65.

$10,000,000. The supply constraints, which are both physical and governmental, combined with the reputation of Aspen, have made this area one of the most expensive housing markets in the country. The fact that this area is a destination for the "jet set", the outdoor enthusiast, and the "average Joe", makes it unlike any other place in the United States.

Additionally, the fact that this area appeals to wealthy individuals means that it attracts second-home buyers. People purchase second-homes to use only a fraction of the year, yet those second-homes take up

space all year round. The result: less land is available for full time residents, and this has the effect of chopping the market off at its knees. The competition for the bottom range of "affordable" properties has caused the selling prices to continually rise. The average selling price of an improved property in Pitkin County was over $800,000 in 1998."

The Rocky Mountains surround Pitkin County and make it very much like an island. They form a border which, much like a body of water, cannot be expanded into. There is a finite amount of land to be developed and everyone who lives and vacations in this area competes for this land.

On an island those with more money can not simply buy the others out. An isolated economy requires a resident labor force. The wealthy need those of modest means and vice versa. The island economy around Aspen will not function without a diverse group of people, but in Aspen's case labor can be imported. Pitkin County has 10,054 housing units and the analysis that follows will shed some light on the dynamics that create a very diverse stock of housing in this area.

3.2. Geography and Distribution

Most of the inhabitable space in the Roaring Fork Valley is surrounded by 14,000 foot mountains and the housing stock being considered in Pitkin County is in a "dead end" valley with only one true access. Route 82 runs diagonally across the region so the area is accessible from the

southeast, or end of the valley, but there is no commuter traffic from this direction. Route 82, which is the primary highway through the county, enters national forest just south of the city of Aspen and then traverses six treacherous miles of mountain side before cutting through

Independence Pass. With an elevation of 12,095 feet, it is not uncommon for this road to see snow in the summer and, due to deep snow and avalanche danger, this road is closed in the winter. The result is that Aspen, and the surrounding area, is really only accessible from the

north on Route 82. All imported goods and non-resident labor must come in from this direction. Aspen and Snowmass Village are the furthest up the valley and are the centers of business. Woody Creek is an agricultural and rural plain and Basalt is the port for this island.

The mountainous terrain in this area restricts building and, as a result, much of the stock of housing is located in the valleys near the rivers and creeks. The rivers have essentially

constructed, or rather destructed, the topography, and thus created a natural linear form around which the buildings have been developed. The physical layout of the housing stock in this county is in the shape of the Greek symbol lambda (X). It is composed of two lines which come together to create a nearly upside-down Y. The use of this symbol will explain the general location of the four primary regions or areas within the county. The right leg of this symbol is

Aspen, the left is Snowmass Village, the waist and torso is Woody Creek, and the neck and head are Basalt.

Figure 3-1

Regional Diagram

This diagram shows the relative location of the regions in this valley. These are the four areas which will be discussed later in the chapter in 3.5. The Current Situation. Chapter 5 will look at housing alternatives outside of the county. First, it is important to understand the recent history of how the stock in the region has developed as a whole.

3.3. Historical Growth in Housing Stock

Pitkin County was first settled in 1887. Figure 3-2 depicts the number of housing units in Pitkin County since 1940 when the U.S. Census started keeping track of housing. The lack of data prior to 1940 does not negatively effect this study. There was inevitably a building boom at the turn of

the century during Aspen's heyday as a mining town, but this housing stock was probably poorly built and demolished soon after Aspen's population shrunk. The key issue is that in 1960 there were approximately 1,000 housing units and just three decades later there were almost 10,000.

Figure 3-2

U.S. Census of Housing

3.4. Housing Stock During the Last Decade

According to the U.S. Census of Housing there were 9,837 housing units in Pitkin County in 1990. Of these homes 3,960 or 40% were considered vacant. They were second homes used only a small percentage of the year. Of the housing units 3,082 or 31% were owner occupied, and 2,795 or 28% of the units were inhabited by rental tenants. While these numbers are helpful, it is more meaningful to see the categories broken down by building type (table 3-1). It is surprising to see the small percentage of single family homes and the large percentage of condominiums

relative to the typical housing market. It is also interesting that there are a large number of multiple unit buildings (Multiple Units plus Condominiums in table 3-1).

Table 3-1

Occupancy by Unit Type

Building Type Vacant Owner Occ. Renter Occ. Total Units Percentage

Single Family Detached 1247 1645 648 3540 36.0

Single Family Attached 248 321 215 784 8.0

Condominiums 2102 612 611 3325 33.8

Multiple Units 194 16 1134 1344 13.6

Mobile Home & Other 166 491 187 844 8.6

Totals 3957 3085 2795 9837 100.0

Percentage 40.2 31.4 28.4 100.01

1990 U.S. Census of Housing

Table 3-2 outlines the size of the homes by number of rooms. Homes with less than four rooms are the most numerous. This is consistent with a large number of condominiums and apartments: condos and apartments comprise 47% of the stock and 5,370 or 55% of the homes are less than 4 rooms. Assuming that single family homes have at least five rooms the remaining small units must be mostly mobile homes.

Table 3-2

Number of Homes With Given Number of Rooms

1 room 897 2 rooms 931 3 rooms 1404 4 rooms 2003 5 rooms 1539 6 rooms 1042 7 rooms 838 8 rooms 454

9 or more rooms

729

The census data present a clear picture of what the housing stock looked like in 1990. The task is then to show the stock growth from that base year until today. This is done using construction permits issued by the building department. Both the city and the county keep records of new construction, additions/alterations, and demolitions on an annual basis. These data provide critical insight into how the housing stock has changed over the past eight years. The records classify buildings in four categories: 1) single family; 2) two family; 3) three & four family; and 4) five or more. Table 3-3 shown the net number of new units by class from 1990-1997.

Table 3-3

Net Change in Housing Stock by Number of Units 1990-1997 Year S.F. TWO 3+4 5+ Total

1990 118 -2 15 10 141 1991 57 0 12 6 75 1992 69 0 14 10 93 1993 74 -4 29 11 110 1994 87 -4 22 6 111 1995 80 6 11 8 105 1996 70 -4 10 44 120 1997 70 70 34 6 180

City of Aspen and Pitkin County Construction Reports

This growth is the result of new construction (table 3-4) and

Table3-4 New Home Construction by Number

demolition (table 3-5).

of Units 1990-1997 Year S.F. TWO 3+4 5+ Total

1990 133 0 15 22 170 1991 62 2 12 6 82 1992 77 0 14 22 113 1993 86 0 29 27 142 1994 91 0 22 6 119 1995 81 6 11 8 106 1996 85 0 14 50 149 1997 98 98 36 6 238

Table 3-5

Housing Demolition by Number of Units 1990-1997

Year S.F. TWO 3+4 5+ Total

1990 15 2 0 12 29 1991 5 2 0 0 7 1992 8 0 0 12 20 1993 12 4 0 16 32 1994 4 4 0 0 8 1995 1 0 0 0 1 1996 15 4 4 6 29 1997 28 28 2 0 58

City of Aspen and Pitkin County Construction Reports

Graphs makes it easier to see how the trends in construction and demolition have affected the housing stock during the last seven years (figure 3-3).

Figure 3-3

City of Aspen and Pitkin County Construction Reports

Breaking the total stock graph into its component parts enables one to see how the different types of housing have grown over the last several years (figures 3-4 through 3-7).

Figure 3-4

Net Change in Single Family Stock Per Year

140. 80 :60 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997

City of Aspen and Pitkin County Construction Reports

Figure 3-6

Net Change in 3& 4 Family Bdgs. Per Year

35 2s 20 15 10 5 1990 1991 192 1993 194 1995 19 1M7

City of Aspen and Pitkin County Construction Reports

Figure 3-5

Net Change in Duplex Stock Per Year

s0 70 60 50 'h40 I 30 20 10 0, -.0 190 1991 1992 1995 1997

City of Aspen and Pitkin County Construction Reports

Figure 3-7

Net Change In & thit Bldgs Per Year

50 45 40 35 C 25 : 20 15 10 5 0 1C 0 1o1 19A2 1993 194 195 1i % 1997

City of Aspen and Pitkin County Construction Reports

The last item to examine in the growth since the 1990 census data is how much money has been spent on residential construction in this area (figure 3-8). It is interesting to note that the vast majority of money is spent on single family housing. In 1991 $30,000,000 out of $32,000,000 was spent to build 62 single-family homes. This information suggests that very few new condominiums were built during this time. New condominiums may have been the result of converting older buildings. These data gives some important insight into how different types of housing have evolved over the last seven years and what has led to the creation of the current

Figure 3-8

Annual Residential Construction Expenditures

$70,000,000

$60,000,000

$50,000,000

$40,000,000

$30,000,000

$20,000,000

$10,000,000

1990 1991 1992 1993 1994 1995 1996 1997

M

Single Family

N

Mult. Unit

With this insight into the Aspen and Pitkin County housing market, there should be little question about what type of housing exists in this area. It is clear that this area is unique in several ways. There are a large number of "vacant" houses, a very high proportion of

condominiums, and a lot of money spent to building relatively few homes. This is in line with what might have been expected for this county, but is not sufficient to explain the dynamics of this area. An analysis of the current situation will shed light on the distribution of different housing types.

3.5. The Current Situation

Pitkin County currently has 10,565 residential housing units according to the county tax records. These 10,565 units can be broken down into five locational markets or areas. These areas are

Aspen, Snowmass Village, Woody Creek, Basalt and everything else or the remainder. The first four areas are depicted in figure 3-1, and the remaining properties are located primarily in Redstone. The remaining 511 property will be excluded from this analysis as they are all rural single family homes which, in terms of number, are less significant than those properties located closer to Aspen in larger towns north of Pitkin County on Route 82. As a result of these

exclusions there are 10,054 housing units which will be considered in this analysis. Figure 3-9 shows the relative locations of the aforementioned areas.

Aspen is the biggest of the four areas considered, in terms of housing stock, as it is the focal point of the valley. It is the urban center and contains 59% of the housing stock in the county. Snowmass Village is second with 26%, Woody Creek third with 9%, and Basalt has 6%. These four regions serve to break Pitkin County down into pieces that provide insight into how the housing stock and available space are distributed in this narrow isolated valley. It is important to note that only a small portion of Basalt is in Pitkin County and as a result much of the stock of

space in this town is not considered in this supply analysis. The remaining portion of Basalt and other areas will be given consideration when looking at the demand for housing in Chapter 5.

The six types of housing that will be distinguished between when looking at the four different areas are: 1) single family: 2) condominiums; 3) manufactured housing, mobile homes, and trailers; 4) two and three unit buildings; 5) four-to-eight-unit buildings; and 6) buildings with nine and more units. Looking at these six types across the four different geographical areas paints a detailed picture of what type of housing is where. The results are shown in table 3-6

Table 3-6

Distribution of Housing Units by Type

Building Type Aspen Snowmass Basalt W. C. Total Percent

Single Family Homes 1950 852 463 477 3742 37.2

Condominium 3129 1753 215 10 5107 50.8

Manufactured Housing 42 0 140 88 270 2.7

Two and Three Family Homes 224 18 6 9 257 2.6

Four thru Eight Unit Buildings 89 0 12 0 101 1.0

Nine and Larger Unit Buildings 530 12 16 19 577 5.7

Total 5964 2635 852 603 10054 100.0

Percent 59.3 26.2 8.5 6.0 100.0_

Several other factors still need to be considered. This requires further categorizing the housing stock into seven different functional groups. These groups are: 1) owner occupied market rate units; 2) non-resident units valued above $1M; 3) non-resident units valued between $500k and

$IM; 4) non-resident units valued between $300k and $500K; 5) deed-restricted owner-occupied units, 6) deed-restricted rental units; and 7) all other units. The term deed-restricted is fully explain in Chapter 4, but it is important to have a basic understanding here. A deed-restricted unit is one that is considered to be "affordable housing." Owner occupied deed-restricted properties can only be owned by working residents and have a price cap. Deer-restricted rental properties can only be rented by working residents and can not command rents higher than those determined by the housing authority. The results of this categorization are shown in table 3-7.

Table 3-7

Distribution of Housing Units by Tenure

Property Aspen Snowmass Basalt W.C. Total Percent

Owner Occupied Market Rate 1894 582 216 377 3069 30.5

Non-resident Units Above $1M 815 351 20 79 1265 12.6

Non-resident Units $500k-$IM 531 443 51 44 1069 10.6

Non-resident Units $300k-$500k 660 415 80 22 1177 11.7

Deed Restricted Owner Occupied 585 221 149 42 997 10.0

Deed Restricted Rented 567 143 0 0 710 7.1

Remainder of Properties 912 480 336 39 1767 17.6

Total 5964 2635 852 603 10054 100.0

Percent 59.3 26.2 8.5 6.0 100.0

1999 Tax Records

Out-of-town residents own 35% of the property in this county and each property is valued above $300,000. These are typically second homes owned by an individual with an out of town mailing address. Many of the second-home buyers are quite wealthy and purchase their property with cash. This means that the owner has no debt-service liability. Most of these owners are willing to bare the opportunity cost of renting the property because they do not need to support

debt-service payments. It is likely that these second-home owners do not want to be bothered with short-term rentals, and want the flexibility to use their property when they choose. As a result, a very large portion of the housing stock is vacant for most of the year.

A second important factor to consider is that wealthy retirees, or otherwise independently wealthy individuals, own many of the owner-occupied units. Thirty-one percent of the housing market consists of owner-occupied units which are similar in price to the non-resident units described above. These are expensive properties that only an extremely well off local

professional could afford. The final analysis of this chapter, which looks at recent sales prices, will shed some light on who can afford this market-rate, owner-occupied housing.

There are two other important things to consider when looking at this analysis. The first is the number of restricted properties. Fourteen percent of the property in the county is deed-restricted, "affordable housing." The second important factor to note is that tourist

accommodations are not included in this study. It is assumed that tourist accommodations are hotels or lodges and thus commercial property. Condominiums available for short term rental are second homes owned by someone willing to employ a management company or who has the time to manage the property themself. These condos are generally not year-round market-rate rental properties as the owners can command much higher prices for weekly tourist rentals. Therefore, this type of property is considered as vacant, non-resident property rather than tourist accommodations or long-term rents.

3.6. Average Sales Prices

The final crucial insight required to understand the supply-side of the housing market in Pitkin County is to determine what is available for sale and its cost. The data available from the Pitkin County Assessor's Office will be used here because this office records all transactions. Table

3-8 shows the high price of real estate in this county. It is important to consider that these averages include the sales of "affordable" properties as well as all types of manufactured housing. This is indeed a very expensive region and the average cost of housing is far above $138,100 which was the national median price that a homeowner could afford in 1993."

Table 3-8

Average Sales Price of All Improved Property in Pitkin County

1998 $896,447.84 692 Jan-Dec

1999 $1,016,771.46 251 Jan-May

1999 Tax Records

3.7. Summary

Aspen is experiencing the growing pains of a maturing resort economy. It is a desirable place to live and vacation, therefore there is a large demand for homes in this area. The limited stock of housing units causes several phenomena to occur. The average price of a housing unit in Pitkin County was almost six and a half times the national average: $896,447 per unit in 1998. Fifty percent of the housing units in this region are condominiums and another thirty-eight percent are single family homes. This leaves only 12% of the housing stock in the form of single-owner, multiple-unit buildings. As these are generally rental properties, this area has a very small

number of units available for rent. Finally, 35% of the housing stock is owned by out-of-town residents who use the property only a fraction of the year.

These factors combine to create a very high cost of housing. Options available on the supply-side of the equation are very limited. Aspen is a supply-constrained housing market, and that is probably never going to change. Clearly the "secret is out", and thousands of people want a piece of Pitkin County. Today, there are housing units of all shapes, sizes, and prices in Aspen,

but the trend is pushing the mean towards larger, more expensive properties. For better or worse, Aspen attracts the type of people who want the biggest and the best.

4. Governmental Regulations and Their Effects on the Housing Stock

4.1. Introduction

In the past three decades Aspen has undergone major changes. The population has more than doubled, but at the same time the resident labor force has decreased as a percentage of that

population. In 1993 the city planning department made an effort to try to define Aspen's goals as a community. The prevailing feeling of polled local residents from Aspen and Pitkin County, was that growth should be limited to ensure the prosperous future of a beautiful region. The majority of residents also felt that the community should avoid creating an environment that was too structured or organized, but instead promote the "messy vitality that originally created Aspen's renowned cultural and sociological diversity."" Residents reported that the biggest threat to diversity at that time was their inability to find affordable housing in the Aspen area.

In order to avoid creating an environment that was too structured or organized, the Aspen City Council and The Pitkin County Board of Commissioners adopted a very detailed and structured plan. On February 2nd, 1993, they implemented the Growth and Housing Action Plans which together constitute the Aspen Area Community Plan (AACP). The AACP documents are unique to this area. They determine the maximum number of new units that can be built each year and

the required percentages of affordable housing. Basically, it is another tool to control land use.

The AACP suggests that if economics alone are allowed to control the housing market, then the qualities that make this area unique will be lost. Supporters of the plan are afraid that Aspen will

lose its characteristic vitality if the majority of the labor force is not housed in the city. The AACPs Community Vision Statement says that Aspen's most valuable resource is its people, and that tourism is the economic force of the community. It goes on to say that the "vitality brought to Aspen by its full time residents is being seriously diluted by the inability of working people to live in their town."" Residents who backed the plan suggested Aspen's unique spirit was in

danger of eroding and the key to reversing the trend is in the community's ability to attract people from all walks of life.

The Aspen Area Community Plan was developed and reported to be a "character based" plan to preserve "the citizen's vision for the Aspen area community." This plan, when combined with the City and County Zoning Regulations, completely controls land use in the county. It helps to ensure that the elected and appointed officials in the city and county government have complete control over what is built and where. The plan may prevent uncontrolled development, but its primary function is to ensure that residents of Aspen who want to live in the metropolitan area have "affordable housing" for themselves and their families.

4.2. Affordable Housing Guidelines

The connotation of "affordable housing" is generally not a very positive one. People tend to think of "projects" or other large-scale housing developments that accommodate the unemployed and impoverished. This is not the case in Pitkin County. The average home price is over

$1 000,000, and the intentions of the affordable housing program is to ensure that the working

people (average family income of $76,036 in 1990)16 who choose to live in this area have a chance to purchase a home or rent an apartment.

Housing prices and rental rates are based on regular surveys of Aspen's working residents. They are set to ensure that no household pays more that 30% of their income for housing. The

affordable housing guidelines of 1998 set maximum unit sales prices and rents based on four categories of income. These categories are changed annually to adjust for inflation. The 1998 figures are shown in table 4-1. Table 4-2 and 4-3 shown deed-restricted properties maximum sale and rental prices respectively.

Table 4-1

Maximum Incomes for Affordable Housing

0 $25,000 $39,765 $64,877 $104,540

1 $32,500 $47,265 $72,377 $112,040

2 $40,000 $54,765 $79,877 $119,540

3+ $47,500 $62,265 $87,377 $127,040

1998 Aspen/Pitkin County Housing guidelines

Table 4-2

Maximum Sales Prices for Newly-Deed-Restricted Affordable Housing

Studio $29,000 $66,000 $109,600 $185,400

1 Bedroom $36,400 $78,300 $120,800 $196,000 2 Bedroom $43,800 $89,700 $132,200 $208,200 3 Bedroom $51,000 $100,300 $143,000 $219,500 S.F. Detached $62,400 $115,800 $158,300 $226,900

1998 Aspen/Pitkin County Housing guidelines

Table 4-3

Maximum Monthly Rent for Affordable Housing

Studio $349 $620 $625 $1,457

1 Bedroom $429 $728 $1,033 $1,576

2 Bedroom $510 $836 $1,142 $1,684

3 Bedroom $592 $946 $1,252 $1,794

S.F. Detached $673 $1,055 $1,359 $1,848 1998 Aspen/Pitkin County Housing guidelines

It quickly becomes clear from looking at these tables that Pitkin County does not have a typical definition of affordable housing. Families earning $127,040 annually qualify for "affordable" housing. This system is not the norm for housing programs around the country; however, it is necessary if working citizens are to live in Aspen. The prices of homes in the open market are

extremely high. It is not uncommon for a three-bedroom house to cost more than $1,000,000. In fact, in the period from May I to November 1, 1998 of the 44 single family homes that were sold, only five sold for under $1,000,000.17 The cost of housing makes it difficult for people to settle in this region. Without Pitkin County's housing programs the people who work in this area could not afford to live there.

4.3. The Aspen Area Community Plan

There is a large working middle class in Pitkin County. Over 47% of the population in the county have a college degree and an additional 10% hold an advanced degree.18 _{These people are}

not performing menial tasks. They hold good jobs and live in this area because they enjoy the

17 Snowmass Real Estate Company, "Mountain Places," Winter 1999

lifestyle. There is only a very small percentage of transient labor living in this area. This region does not attract a lot of ski bums that come for a year and then go and get a "real" job. The high

cost of living here prevents people from living near the ski slopes. As a result, the minimal transient labor tends to be Mexicans who live in group quarters in the lower valley and are attracted by the high wages paid in the upper valley.

"Aspen's affordable housing program is a comprehensive series of regulations and incentives to preserve, create, and encourage affordable housing in scale with the community."9 The primary

goal of the plan is to ensure that at least 60% of Aspen's employees can live in the Aspen area. In 1994 only 45% of the workforce lived in the area, and some recent estimates put that figure as

low as 27%. To achieve the goal of housing 60% of the workforce, the AACP has laid out a series of policies and programs.

One of these policies is the backbone of the AACP: The Growth Action Plan limits growth to 2% per year, by total number of housing units, and forces developers to compete for limited development rights. The competition for residential building permits gives extra credit to those proposals containing "desirable" allocations of affordable housing. In order to get subdivision approved, one must keep in mind that at least 60% of the total number of new units approved in any given year must be deed-restricted as affordable units. The commercial and large

development programs require developers to build units for employees or purchase existing units

19 Amy Margerum and David Tolen, "Aspen's Affordable Housing Program Helps Create Community," Colorado

and place them in the deed-restricted program. As a result of this program, employers mitigate the housing needs of 60% of their potential employees.

These programs are effective in promoting affordable housing; however, as always when motivated by money, people manage to find loopholes. As real estate prices continued to rise after the implementation of the AACP, people began to demolish some of the existing stock. Older rental properties were the first to go, and they were replaced with second homes and

expensive condos. This displaced local renters and served to decrease the stock of affordable housing. As a result a referendum was passed requiring 50% of demolished units to be replaced by affordable housing. Additionally, construction of new single-family housing requires either payment of a fee of $14.75 per square foot or the construction of an accessory dwelling unit (ADU). An ADU is a unit that is available for rent to a local working resident. These units are exempt from growth management controls and all fees are waived in order to encourage their construction.

Another important part of the Housing Action Plan is a major initiative to encourage private sector construction of affordable housing in the City's Affordable Housing Zone District. Within this zoning district, if 70% of the units are deed-restricted affordable housing then the 30% market rate units are exempt from the growth management process. The intention is that developers will choose this method of development because they can build without competing

for allocations through the Growth Management Plan. The cost of unimproved land and labor makes it difficult for developers to profit under the above-mentioned program; however, three

A second program designed to promote reasonably priced homes is the Resident Occupied Home Program. This program is intended to target the housing demand of local professionals whose household income is above $130,000 per year. A resident occupied unit (ROU) must be owned and occupied by a local working resident, but it may be priced by the developer based on the demand for such units. The appreciation is capped on ROUs to prevent a resident from buying

and then selling the property only to make a large profit. As a trade off the project is exempt from the time-consuming growth-management approval process. The permitting of affordable housing units, resident occupied units, and accessory dwelling units for the past 4 years is shown in table 4-4.

Table 4-4

Permitting of Affordable Housing under the GMQS Since 1995

1995 1996 1997 1998

Affordable Housing Units 3 32 197 34 Resident Occupied Units 0 73 0 4 Accessory Dwelling Units 0 24 18 8

Existing Conditions Report - 1998 AACP Update

Finally, the largest aspect of the affordable housing program is the Public Sector Production Program. The city and county, through the Housing Office, have an aggressive program to build new affordable housing units. Aspen raises more than $1,000,000 per year from a real estate transfer tax and another $1,400,000 from a 0.45% sales tax.2 0 _{These funds are used to purchase}

land and build affordable housing to be sold or rented to working residents.

20 Amy Margerum and David Tolen, "Aspen's Affordable Housing Program Helps Create Community," Colorado